EVERGREEN
NATIONAL
TAX-FREE FUND
Semi-Annual Report
February 28, 1995
THE EVERGREEN FUNDS [LOGO]
<PAGE>
Dear Fellow Shareholder:
Evergreen National Tax-Free Fund's total return (Class Y, no-load shares)
for the six months ended February 28, 1995, was +3.17%*, slightly behind the
Lehman Brothers Insured Municipal Bond Index** at +3.23%. For the calendar
year-to-date, the Fund's total return was +7.06%, compared to the Index at
+6.50%. Since its inception on December 30, 1992, the Fund has outperformed the
Index by 1.0%. At this writing, the Fund's portfolio has net assets of $23.7
million, an average maturity of 15.3 years and a duration of 9.05 years. The
Fund's historical performance as of February 28, 1995, is illustrated in the
table below*.
Class Y Class A Class B
Shares Shares Shares
------- ------- -------
6-Month Total Return 3.17% -0.55% -1.70%
1-Year Total Return 0.74% -3.95% -3.87%
Average Annual
Compound Return
Since Inception 6.39% 4.08% 4.65%
30-Day SEC Yield+ 5.41% 5.09% 4.39%
Tax-Equivalent Yield+ 8.45% 7.95% 6.86%
(36% marginal Federal tax bracket)
Since our last report in August, 1994, the fixed income markets -- in
particular, the municipal bond market -- have experienced significant
volatility. Yet, the markets are remarkably little changed in price or yield. To
demonstrate, as of February 28, 1995, the yield on the Bond Buyers Index** of 25
revenue bonds stood at 6.31%, versus 6.43% at the end of August. The long
Treasury bond stood at 7.48%, versus 7.45% in August. During this interval,
however, Federal Reserve policies drove prices lower, and yields higher by
nearly 75 basis points (3/4 percent). Since those lows, the markets have staged
a turnaround such that the Fund's NAV (Class Y, no-load shares) which was $9.99
at the end of August stood at $10.04 on February 28. Thus, your patience during
some very unsettled times of Federal Reserve tightening and inflationary fears
were rewarded as the municipal marketplace rebounded in December, January and
February.
Although it is not clear that actions taken by the Federal Reserve have
forestalled inflationary pressures or preclude further rate increases, it is
clear that the municipal marketplace will be in a very strong technical position
to perform well, as compared to the taxable marketplace. The strong showing
year-to-date is evidence of the strong demand versus limited supply dynamic that
is at work in this market for the foreseeable future. Even if interest rates
were to rise again, we believe the current coupon structure of available bonds
should generate sufficient income to help provide for positive returns in 1995.
Having put behind us the worst bond market in decades, we are expectant of some
very good opportunities for tax-free funds in the year to come.
The Trustees of Evergreen National Tax-Free Fund have approved the sale of
substantially all of the assets of the Fund to the First Union High Grade Tax
Free Fund, whose investment objectives and policies are substantially simular to
those of Evergreen National Tax-Free Fund. In the near future, shareholders will
be receiving proxy material soliciting their votes in favor of the transaction.
Assuming shareholder approval, it is anticipated that the transaction will be
completed on or about July 1, 1995.
We appreciate your interest in Evergreen National Tax- Free Fund and we
look forward to an exciting and rewarding period to come in our association with
First Union Corp.
Sincerely,
/s/ Stephen A. Lieber /s/ James T. Colby III
Stephen A. Lieber James T. Colby, III
Chairman Portfolio Manager
Evergreen Asset Fixed Income
Management Corp.
February 28, 1995
- -------------------------------------------------------------------------------
FIGURES REPRESENT PAST PERFORMANCE, WHICH DOES NOT GUARANTEE FUTURE RESULTS.
* Performance figures include reinvestment of income dividend and capital gain
distributions, if any. The Fund's return, net asset value and yield will
fluctuate and there can be no guarantee that the Fund will achieve its objective
or any particular tax exempt yield. Investors' shares, when redeemed, may be
worth more or less than their original cost. Income may be subject to some state
and local taxes and the Federal alternative minimum tax for certain investors.
Fund's inception: 12/30/92
Since Class A shares, (subject to a maximum front-end sales charge of 4.75%) and
Class B shares (subject to a maximum contingent deferred sales charge of 5.00%)
were not in existence until 1/30/95 and 1/4/95, respectively, the performance
for such classes until such dates has been calculated based upon the performance
of the existing no-load (Class Y) shares as adjusted for any front-end or
back-end sales charges. That performance data for Class A and Class B shares
does not reflect any 12b-1 fees through 1/30/95 and 1/4/95, respectively, and if
reflected, the returns would be lower.
The Fund may incur 12b-1 expenses up to an annual maximum of .75 of 1% of
its aggregate average daily net assets attributable to Class A shares and 1.00%
of its aggregate average daily net assets attributable to Class B shares. For
the foreseeable future, however, management intends to limit such payments on
the Class A shares to .25 of 1% of the Fund's aggregate average daily net
assets.
** Unmanaged indices.
+ Currently, the Adviser is waiving a portion of its advisory fee, and for Class
A and Class B shares, absorbing a portion of these classes other expenses. Had
these fees not been waived or expenses absorbed, the Fund's 30-day annualized
and tax-equivalent yields would have been 5.14% and 8.03% for Class Y shares,
4.23% and 6.61% for Class A shares, and 3.28% and 5.13% for Class B shares,
respectively, and returns would have been lower. Voluntary fee waivers and
expense absorption may be revised at any time. The tax-equivalent yield would be
lower for investors in lower tax brackets.
<PAGE>
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EVERGREEN NATIONAL TAX-FREE FUND
STATEMENT OF INVESTMENTS (CONTINUED)
FEBRUARY 28, 1995 (UNAUDITED)
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000) ISSUE VALUE
- -------------------------------------------------------------------------------
ALASKA--2.1%
- -------------------------------------------------------------------------------
$500 Municipality of Anchorage Senior Lien Electric $ 505,985
Series 1993 RRB (MBIA) 6.20% Due 12/01/13
- -------------------------------------------------------------------------------
ARIZONA--4.6%
- -------------------------------------------------------------------------------
1,000 Creighton Elementary School District No. 14 of 1,099,010
Maricopa County, School Improvement Bonds, Project
of 1990 (Series C 1991) (FGIC) 6.50% Due 07/01/07
- -------------------------------------------------------------------------------
ARKANSAS--3.9%
- -------------------------------------------------------------------------------
900 Beaver Water District of Benton and Washington 926,226
Counties RRB Series 1994 (MBIA) 5.75% Due 11/15/07
- -------------------------------------------------------------------------------
CALIFORNIA--11.0%
- -------------------------------------------------------------------------------
1,000 City of Fresno Sewer System Series 1993A RB (AMBAC) 1,043,190
6.25% Due 09/01/14
- -------------------------------------------------------------------------------
1,000 Redevelopment Agency of the City of San Jose Merged 1,027,810
Area Redevelopment Project Tax Allocation Bonds
Series 1993 (MBIA) 6.00% Due 08/01/08
- -------------------------------------------------------------------------------
500 San Mateo County Joint Powers Financing Authority 537,360
Lease (Capital Projects Program) Series 1993A RRB
(MBIA) 6.50% Due 07/01/16
- -------------------------------------------------------------------------------
2,608,360
- -------------------------------------------------------------------------------
DISTRICT OF COLUMBIA--4.4%
- -------------------------------------------------------------------------------
1,000 Washington Metropolitan Area Transit Authority Gross 1,034,290
Revenue Transit RRB Series 1993 (FGIC) 6.00% Due
07/01/08
- -------------------------------------------------------------------------------
GEORGIA--2.3%
- -------------------------------------------------------------------------------
500 City of Atlanta Airport Facilities Series 1994A RRB 534,980
(AMBAC) 6.50% Due 01/01/10
- -------------------------------------------------------------------------------
HAWAII--5.7%
- -------------------------------------------------------------------------------
1,250 Hawaii State Airport Systems Second Series 1990 RB 1,343,188
(FGIC) 7.50% Due 07/01/20
- -------------------------------------------------------------------------------
IDAHO--4.3%
- -------------------------------------------------------------------------------
1,000 Idaho Housing Agency Single Family Mortgage Bonds 1,015,270
Series 1994 C-1 Term Mezzanine Bonds 6.30% Due
07/01/11
- -------------------------------------------------------------------------------
ILLINOIS--5.6%
- -------------------------------------------------------------------------------
1,250 City of Chicago Water Series 1993 RRB (FGIC) 6.50% 1,337,212
Due 11/01/15
- -------------------------------------------------------------------------------
IOWA--2.1%
- -------------------------------------------------------------------------------
500 City of Iowa City, Johnson County Sewer Series 1993 503,635
RB (AMBAC) 6.00% Due 07/01/12
- -------------------------------------------------------------------------------
MAINE--4.8%
- -------------------------------------------------------------------------------
1,000 Maine Turnpike Authority Turnpike RB Series 1994 1,135,800
(MBIA) 7.125% Due 07/01/08
- -------------------------------------------------------------------------------
MARYLAND--2.1%
- -------------------------------------------------------------------------------
500 Community Development Administration Department of 491,340
Housing and Community Single Family Program Bonds,
First Series 1994 5.70% Due 04/01/17
- -------------------------------------------------------------------------------
MICHIGAN--4.5%
- -------------------------------------------------------------------------------
1,000 City of Detroit Water Supply System Series 1993 RRB 1,076,620
(FGIC) 6.50% Due 07/01/15
- -------------------------------------------------------------------------------
MINNESOTA--2.2%
- -------------------------------------------------------------------------------
500 Minnesota Housing Finance Agency Single Family 514,290
Mortgage Bonds Series 1994H 6.70% Due 01/01/18
- -------------------------------------------------------------------------------
NEW YORK--4.3%
- -------------------------------------------------------------------------------
500 New York State Thruway Authority General Revenue 495,145
Bonds Series C 6.00% Due 01/01/25
- -------------------------------------------------------------------------------
500 The Port Authority of New York and New Jersey 514,130
Consolidated Bonds, Ninety Fifth Series Second
Installment-Term Bonds 6.50% Due 07/15/19
- -------------------------------------------------------------------------------
1,009,275
- -------------------------------------------------------------------------------
NEW MEXICO--4.3%
- -------------------------------------------------------------------------------
City of Albuquerque, New Mexico
Airport RB (AMT) (AMBAC)
500 Series 1995 A 519,530
6.35% Due 07/01/07
500 Series 1995 B 510,455
7.00% Due 07/01/16
- -------------------------------------------------------------------------------
1,029,985
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
(000) ISSUE VALUE
- -------------------------------------------------------------------------------
OHIO--10.0%
- -------------------------------------------------------------------------------
500 Ohio Housing Finance Agency Residential Mortgage 504,735
Revenue Bonds (GNMA Mortgage-Backed Securities
Program), 1995 Series A-2 (AMT) 6.625% Due 03/01/26
- -------------------------------------------------------------------------------
1,100 Ohio Air Quality Development Authority (JMG Funding, 1,118,381
Limited Partnership Project) Series 1994 RRB (AMBAC)
6.375% Due 04/01/29
- -------------------------------------------------------------------------------
$750 Ohio Water Development Authority Water Development 753,757
RRB 1992 Clean Water Refunding Bonds (MBIA) 6.00%
Due 12/01/16
- -------------------------------------------------------------------------------
2,376,873
- -------------------------------------------------------------------------------
PENNSYLVANIA--2.4%
- -------------------------------------------------------------------------------
500 Pennsylvania Industrial Development Authority RB 563,190
Series 1994 (AMBAC) 7.00% Due 01/01/07
- -------------------------------------------------------------------------------
SOUTH CAROLINA--2.3%
- -------------------------------------------------------------------------------
500 Piedmont Municipal Power Agency (South Carolina) 548,525
Electric Revenue Bonds, 1991 Refunding Series (FGIC)
6.75% Due 01/01/19
- -------------------------------------------------------------------------------
TEXAS--5.0%
- -------------------------------------------------------------------------------
1,000 City of Houston Water Conveyance Systems Contract 1,194,490
Series 1993H COP (AMBAC) 7.50% Due 12/15/14
- -------------------------------------------------------------------------------
VIRGINIA--5.4%
- -------------------------------------------------------------------------------
1,250 Chesapeake Bay Bridge and Tunnel District General 1,272,075
Resolution Revenue Bonds, Refunding Series
1991(MBIA) 6.375% Due 07/01/22
- -------------------------------------------------------------------------------
WASHINGTON--2.2%
- -------------------------------------------------------------------------------
500 Tacoma, Washington Electric System Series 1992A RRB 512,730
(AMBAC) 6.25% Due 01/01/11
- -------------------------------------------------------------------------------
TOTAL LONG-TERM INVESTMENTS
(COST $22,474,456) 95.5% 22,633,349
- -------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES-NET 4.5 1,071,054
- -------------------------------------------------------------------------------
TOTAL NET ASSETS 100.0% $23,704,403
- -------------------------------------------------------------------------------
COP--Certificates of Participation
RB--Revenue Bonds
RRB--Revenue Refunding Bonds
++At February 28, 1995, the percentage breakdown of total investments which are
insured by municipal bond insurance companies are as follows:
AMBAC--American Municipal Bond Assurance Corp. 29%
FGIC--Financial Guaranty Insurance Corp. 28
MBIA--Municipal Bond Insurance Association 27
--
% of Total Investments Insured 84%
==
<PAGE>
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EVERGREEN NATIONAL TAX-FREE FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1995 (UNAUDITED)
- -------------------------------------------------------------------------------
ASSETS:
Investments at value (identified cost $22,474,456) $22,633,349
Cash 32,383
Receivable for investment securities sold 2,679,435
Receivable for Fund shares sold 353,660
Interest receivable 319,903
Unamortized organization expenses 26,655
Prepaid expenses 59,446
- -------------------------------------------------------------------------------
Total assets 26,104,831
- -------------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities purchased 2,320,046
Payable for Fund shares repurchased 2,059
Payable to Adviser 32,208
Accrued advisory fees 1,859
Accrued expenses 21,975
Dividend payable in cash 22,281
- -------------------------------------------------------------------------------
Total liabilities 2,400,428
- -------------------------------------------------------------------------------
NET ASSETS:
Paid-in capital 26,561,142
Accumulated net realized loss on investment transactions (3,015,632)
Net unrealized appreciation of investments 158,893
- -------------------------------------------------------------------------------
Net assets $23,704,403
===============================================================================
CALCULATION OF MAXIMUM OFFERING PRICE:
CLASS A SHARES
Net asset value per share ($192,222/19,136 shares of beneficial
interest outstanding) $10.05
Sales charge--4.75% of public offering price .50
-----
Maximum offering price $10.55
=====
CLASS B SHARES
Net asset value and offering price per share
($665,328/66,214 shares of beneficial interest outstanding) $10.05
=====
CLASS Y SHARES
Net asset value and offering price per share
($22,846,853/2,274,991 shares of beneficial
interest outstanding) $10.04
=====
- -------------------------------------------------------------------------------
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
EVERGREEN NATIONAL TAX-FREE FUND
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Interest and discount earned $ 974,631
EXPENSES:
Advisory fee $82,554
Custodian fee 23,050
Registration and filing fees 14,518
Transfer agent expense 10,044
Reports and notices to shareholders 5,742
Professional fees 5,562
Trustees' fees and expenses 5,126
Amortization of organization expenses 4,661
Insurance expense 3,582
Distribution fee--Class A shares 21
Distribution and services fees--Class B shares 274
155,134
Less: Advisory fee waiver (44,577)
Expense reimbursement (1,380)
Total expenses 109,177
- ---------------------------------------------------------------------------------------------------------------------
Net investment income 865,454
- ---------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss on investments (1,769,755)
Net change in unrealized appreciation (depreciation) of investments 850,220
- ---------------------------------------------------------------------------------------------------------------------
Net loss on investments (919,535)
- ---------------------------------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (54,081)
=====================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
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EVERGREEN NATIONAL TAX-FREE FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FEBRUARY 28, 1995 YEAR ENDED
(UNAUDITED) AUGUST 31, 1994
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income $ 865,454 $ 1,995,694
Net realized loss on investments (1,769,755) (1,159,204)
Net change in unrealized appreciation
(depreciation) of investments 850,220 (1,935,794)
- -----------------------------------------------------------------------------------------------------------------
Net decrease in net assets resulting from operations (54,081) (1,099,304)
- -----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income--Class A shares (317) --
From net investment income--Class B shares (903) --
From net investment income--Class Y shares (864,234) (1,995,694)
From net realized gains on investments -- (494,382)
In excess of net realized gains on investments -- (86,673)
- -----------------------------------------------------------------------------------------------------------------
Total distributions to shareholders (865,454) (2,576,749)
- -----------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8)
Net increase (decrease) resulting from Fund share transactions (17,519,395) 12,734,280
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets (18,438,930) 9,058,227
NET ASSETS:
Beginning of year 42,143,333 33,085,106
- -----------------------------------------------------------------------------------------------------------------
End of period $ 23,704,403 $ 42,143,333
=================================================================================================================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
EVERGREEN NATIONAL TAX-FREE FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--ORGANIZATION
Evergreen National Tax-Free Fund (the "Fund") is a portfolio of The Evergreen
Municipal Trust (the "Trust"). The Trust was organized in the Commonwealth of
Massachusetts as a Massachusetts business trust on July 13, 1988. The Fund is
registered under the Investment Company Act of 1940, as amended (the "Act") as
an open-end, diversified management investment company and commenced investment
operations on December 30, 1992.
NOTE 2--APPROVAL AND ISSUANCE OF MULTIPLE CLASSES OF SHARES
On December 13, 1994, the Fund's shareholders, among other things, approved
amendments to the Declaration of Trust to permit the issuance of additional
classes of shares. On December 27, 1994, the Securities and Exchange Commission
approved the application to issue additional classes of shares. In connection
with the adoption of the multiple class distribution program, the Trustees have
designated the existing shares of the Fund as Class Y (no load) shares and have
created two new classes of shares designated Class A and Class B shares. Class A
shares are offered with a front-end sales charge of 4.75% which will be reduced
on purchases in excess of $100,000. Class B shares are offered with a contingent
deferred sales charge payable when shares are redeemed which would decline from
5% to zero over a seven year period. All three classes of shares have identical
voting, dividend, liquidation and other rights, except that certain classes bear
different distribution expenses (see Note 6) and have exclusive voting rights
with respect to its distribution plan.
NOTE 3--SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
SECURITY VALUATION--Portfolio securities (other than short-term obligations
purchased with a remaining maturity of 60 days or less) are valued on the
basis of valuations provided by a pricing service when such prices are
believed to reflect the fair value of such securities. Short-term obligations
purchased with a remaining maturity of 60 days or less are valued at
amortized cost, which approximates market value.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME--Securities transactions are
recorded on the trade date (the date the order to buy or sell is executed).
Interest income, including the amortization of discount and premium, is
recognized on the accrual basis.
DISTRIBUTIONS TO SHAREHOLDERS--The Fund declares substantially all of its net
investment income as dividends each business day to shareholders of record.
At the end of each month, such dividends are either reinvested in Fund shares
and credited to the shareholder's account or, if elected by the shareholder,
paid in cash. Distributions of net realized capital gains (if any) will be
made at least annually.
FEDERAL TAXES--It is the Fund's policy to comply with the requirements of the
Internal Revenue Code applicable to regulated investment companies and to
distribute all of its income and net capital gains to its shareholders.
Therefore, no Federal income or excise tax provision is required. During the
year ended August 31, 1994, the Fund distributed $86,673 in excess of net
realized gains recognized for financial statement purposes. The Fund has
elected for Federal income tax purposes to treat $1,245,717 of net capital
losses that arose after October 31, 1993 ("post-October losses") within the
prior fiscal year end as if arising on the first business day of the current
fiscal year.
UNAMORTIZED ORGANIZATION EXPENSES--The expenses of the Fund incurred in
connection with its organization and initial registration are being deferred
and amortized by the Fund over a period of benefit not to exceed 60 months
from the date the Fund commenced investment operations.
ALLOCATION OF EXPENSES--EXPENSES specifically identifiable to the Fund or to
a class of shares are charged to the Fund or class. Other expenses common to
the Fund or the Trust as a whole, including the compensation of all
non-affiliated trustees of the Trust, are primarily allocated to the funds in
the Trust or to the classes in the Fund in proportion to net assets.
NOTE 4--ADVISORY FEE AND RELATED PARTY TRANSACTIONS
Evergreen Asset Management Corp. (the "Adviser"), an affiliate of Lieber &
Company, is the investment adviser to the Fund and also furnishes the Fund with
administrative services. The Adviser, which is an indirect, wholly-owned
subsidiary of First Union Corporation, succeeded on June 30, 1994 to the
advisory business of the same name, but under different ownership. The Adviser
is entitled to a fee, accrued daily and payable monthly, for the performance of
its services at the annual rate of .50 of 1% of the daily net assets of the
Fund. For the six months ended February 28, 1995, the Adviser voluntarily waived
a portion of its advisory fee. In addition, the Adviser voluntarily reimbursed
Class A and Class B shares for certain class specific expenses in the amount of
$652 and $728, respectively. The Adviser may, at its discretion, revise or cease
these voluntary expense waivers and reimbursements at any time.
The Adviser has agreed to reimburse the Fund to the extent that the Fund's
aggregate annual operating expenses (including the Adviser's fee and
amortization of organization expenses, but excluding interest, taxes, brokerage
commissions, 12b-1 distribution and shareholder service fees, and extraordinary
expenses) exceed 1.25% of its average daily net assets for any fiscal year.
Lieber & Company is the investment sub-adviser to the Fund. Lieber & Company is
reimbursed by the Adviser, at no additional expense to the Fund, for its cost of
providing investment advisory services.
NOTE 5--PORTFOLIO TRANSACTIONS
Cost of purchases and proceeds from sales of investments, other than short-term
obligations, aggregated $15,876,951 and $28,965,631 respectively, for the six
months ended February 28, 1995.
The aggregate cost of investments owned at February 28, 1995,
is the same for financial statement and Federal income tax purposes. Gross
unrealized appreciation and depreciation of securities at February 28, 1995, was
$428,632 and $269,739, respectively, resulting in net unrealized appreciation
for Federal income tax purposes of $158,893.
NOTE 6--DISTRIBUTION AND SHAREHOLDER SERVICES FEE
The Fund has adopted for each of its Class A and Class B shares, a Distribution
Plan (the "Plans") pursuant to Rule 12b-1 under the Act. Under the terms of the
Plans, the Fund may incur distribution-related and shareholder servicing-related
expenses which may not exceed, as a percentage of average daily net assets on an
annual basis, .75 of 1% for Class A shares and 1% for Class B shares. The
payments under the Class A Plan will be voluntarily limited to .25 of 1%.
In connection with the Plans, the Fund has entered into a distribution agreement
with Evergreen Funds Distributor, Inc. ("EFD"), a subsidiary of Furman Selz
Incorporated, whereby the Fund will compensate EFD for its services at a rate
which may not exceed, as a percentage of average daily net assets on an annual
basis, .25 of 1% for Class A shares and .75 of 1% for Class B shares. Such fees
are accrued daily and paid monthly. The Agreement provides that EFD will use
such fees to finance activities that promote the sale of Class A and Class B
shares.
A portion of the payments under the Class B Plan up to .25 of 1% of average
daily net assets may constitute a shareholder service fee. The Fund has entered
into a Shareholder Services Agreement with First Union Brokerage Services
("FUBS"), an affiliate of the Adviser, whereby the Fund will compensate FUBS for
certain services provided to shareholders and/or for the maintenance of
shareholder accounts relating to the Funds Class B shares. Such fees are accrued
daily and paid monthly.
NOTE 7--CONCENTRATION OF CREDIT RISK
The Fund invests in obligations issued by states, territories and possessions of
the United States and by the District of Columbia, and by their political
subdivisions and duly constituted authorities. The issuers' abilities to meet
their obligations may be affected by economic and political developments in a
specific state or region.
The Fund intends to invest at least 80% of its total assets in obligations that,
at the time of purchase, are insured as to the payment of interest and
principal. Certain debt obligations held in the Fund's portfolio may be entitled
to the benefit of standby letters of credit or other guarantees of banks or
other financial institutions.
<PAGE>
NOTE 8--SHARES OF BENEFICIAL INTEREST
There is an unlimited number of $.0001 par value shares of beneficial interest
authorized, divided into three classes, designated Class A, Class B, and Class
Y. Transactions in shares of beneficial interest were as follows:
SIX MONTHS ENDED
FEBRUARY 28, 1995
- -------------------------------------------------------------------------------
SHARES DOLLARS
- -------------------------------------------------------------------------------
CLASS A*
Shares sold 19,104 $188,951
Shares issued on reinvest-
ment of distributions 32 317
Shares redeemed -- --
- -------------------------------------------------------------------------------
Net increase 19,136 $189,268
===============================================================================
CLASS B*
Shares sold 66,158 $653,334
Shares issued on reinvest-
ment of distributions 56 562
Shares redeemed -- --
- -------------------------------------------------------------------------------
Net increase 66,214 $653,896
===============================================================================
CLASS Y
Shares sold 735,388 $ 6,940,537
Shares issued on reinvest-
ment of distributions 79,704 763,823
Shares redeemed (2,756,560) (26,066,919)
- -------------------------------------------------------------------------------
Net decrease (1,941,468) $(18,362,559)
===============================================================================
Total net decrease
resulting from Fund
share transactions (1,856,118) $(17,519,395)
===============================================================================
YEAR ENDED
AUGUST 31, 1994
- -------------------------------------------------------------------------------
SHARES DOLLARS
- -------------------------------------------------------------------------------
CLASS Y
Shares sold 2,815,233 $29,696,495
Shares issued on
reinvestment of
distributions 231,806 2,424,612
Shares redeemed (1,860,323) (19,386,827)
- -------------------------------------------------------------------------------
Net increase
resulting from Fund
share transactions 1,186,716 $12,734,280
===============================================================================
* For Class A and B shares, the Fund share transaction activity reflects the
period from commencement of class operations January 30, 1995 and January 4,
1995, respectively, through February 28, 1995.
NOTE 9--SUBSEQUENT EVENT
At a special Board meeting held on Tuesday, March 7, 1995, the Trustees, on
behalf of the Fund, approved an Agreement and Plan of Reorganization, pursuant
to which First Union High Grade Tax Free Fund ("High Grade"), which is a series
of First Union Funds, would purchase substantially all of the net assets of the
Fund, subject to a vote by the shareholders of the Fund to approve the
transaction (the "Acquisition"). High Grade is advised by the Capital Management
Group of First Union National Bank of North Carolina ("FUNB"), an affiliate of
the Adviser, and has investment objectives and investment policies which are
substantially similar to those of the Fund. A meeting of the Fund's shareholders
is tentatively scheduled for June 15, 1995, for the purpose of voting on the
Acquisition of High Grade. Notice regarding this meeting and details of the
proposed acquisition will be sent to shareholders shortly. If the Fund's
shareholders approve the Acquisition, it is presently contemplated that the
acquisition will be completed on July 1, 1995. As part of the transaction, the
Fund will cease to exist, and shareholders of the Fund will receive shares of
High Grade.
<PAGE>
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EVERGREEN NATIONAL TAX FREE FUND
FINANCIAL HIGHLIGHTS
CLASS Y SHARES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED DECEMBER 30, 1992*
FEBRUARY 28, 1995 YEAR ENDED THROUGH
PER SHARE DATA (UNAUDITED) AUGUST 31, 1994 AUGUST 31, 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year $ 9.99 $10.92 $10.00
- -------------------------------------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .25 .53 .40
Net realized and unrealized gain (loss)
on investments .05 (.77) .92
- -------------------------------------------------------------------------------------------------------------------
Total income from investment operations .30 (.24) 1.32
- -------------------------------------------------------------------------------------------------------------------
Distributions to shareholders:
From net investment income (.25) (.53) (.40)
From net realized gains on investments -- (.14) --
In excess of net realized gains on investments -- (.02) --
- -------------------------------------------------------------------------------------------------------------------
Total distributions (.25) (.69) (.40)
- -------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.04 $ 9.99 $10.92
===================================================================================================================
TOTAL RETURN++ 3.2% (2.3)% 13.5%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $22,847 $42,143 $33,085
Ratios to average net assets:
Expenses .66%** .29% .0%**
Net investment income 5.25%** 5.07% 5.51%**
Voluntary advisory fee waiver++ .27%** .48% .50%**
Voluntary expense reimbursement++ -- .12% .42%**
Portfolio turnover rate 53% 135% 166%
===================================================================================================================
</TABLE>
*Commencement of operations.
**Annualized.
+Total return is calculated for the periods indicated is not annualized.
++This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
See accompanying notes to financial statements.
<PAGE>
- -------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
JANUARY 30, 1994* JANUARY 4, 1995*
THROUGH THROUGH
PER SHARE DATA February 28, 1995 February 28, 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 9.70 $ 9.47
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income .05 .07
Net realized and unrealized gain on investments .35 .58
- --------------------------------------------------------------------------------------------------------------------
Total income from investment operations .40 .65
- --------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from net investment income (.05) (.07)
- --------------------------------------------------------------------------------------------------------------------
Net asset value, end of period $10.05 $10.05
====================================================================================================================
TOTAL RETURN+ 4.1% 6.9%
RATIOS & SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $192 $665
Ratios to average net assets:#
Expenses .64% 1.11%
Net investment income 3.84% 3.12%
Voluntary advisory fee waiver++ .27% .27%
Voluntary expense reimbursement++ .59% .87%
Portfiolio turnover rate** 53% 53%
====================================================================================================================
</TABLE>
*Commencement of class operations.
**Portfolio turnover rate is calculated for the six months period ended
February 28, 1995.
+Total return is calculated on net asset value per share for the periods
indicated and is not annualized. Initial sales charges or contingent deferred
sales charges are not reflected.
++This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
#Annualized. Due to the recent commencement of their offering, the ratios for
Class A and Class B shares are not necessarily comparable to that of the
Class Y shares, and are not necessarily indicative of future ratios.
See accompanying notes to financial statements.
<PAGE>
EVERGREEN FAMILY OF FUNDS
GROWTH FUNDS ____________________________________
EVERGREEN FUND seeks capital appreciation by investing in securities of little
known or relatively small companies and companies with entrepreneurial
management.
GLOBAL REAL ESTATE EQUITY FUND seeks capital appreciation by investing in
securities of companies involved in various aspects of the real estate industry
throughout the world.
LIMITED MARKET FUND seeks capital appreciation by investing in securities of
little-known, small or special situation companies.
U.S. REAL ESTATE EQUITY FUND seeks long-term capital growth by investing in
equity securities of U.S. companies which are principally engaged in the real
estate industry or which own significant real estate assets.
GROWTH & INCOME FUNDS _________________________
AMERICAN RETIREMENT FUND seeks conservation of capital, reasonable income and
capital growth by investing in a diversified and balanced portfolio of equity
and fixed income securities.
EVERGREEN FOUNDATION FUND seeks reasonable income, conservation of capital and
growth by investing in common and preferred stocks, convertibles and fixed
income securities.
GROWTH & INCOME FUND seeks capital appreciation and current income by investing
in securities of companies undervalued in the marketplace due to temporary
adverse circumstances or misperceptions of underlying values.
SMALL CAP EQUITY INCOME FUND seeks a return consisting of current income and
capital appreciation by investing primarily in companies with market
capitalizations of less than $500 million.
TAX STRATEGIC FOUNDATION FUND seeks to maximize the after tax total return on
its portfolio investments by investing in common and preferred stocks and
securities convertible into or exchangeable for common stocks, and municipal
securities.
TOTAL RETURN FUND seeks a total return consisting of current income and capital
appreciation by investing in common and preferred stocks, securities convertible
or exchangeable for common stocks and fixed income securities.
INCOME FUND _____________________________________
U.S. GOVERNMENT SECURITIES FUND seeks a high level of return from a combination
of current income and capital appreciation through investment in obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
TAX-FREE FUNDS___________________________________
NATIONAL TAX-FREE FUND seeks a high level of current income, exempt from Federal
income tax, by investing at least 80% of its portfolio in insured long-term
municipal securities.
SHORT-INTERMEDIATE MUNICIPAL FUND seeks as high a level of current income,
exempt from Federal income tax (other than the alternative minimum tax), as is
consistent with preserving capital and providing liquidity by investing in short
and intermediate-term municipal securities.
SHORT-INTERMEDIATE MUNICIPAL FUND-CALIFORNIA seeks as high a level of current
income, exempt from Federal and California state income taxes, as is consistent
with preserving capital and providing liquidity by investing in short and
intermediate-term municipal securities.
MONEY MARKET FUNDS _________________________
MONEY MARKET TRUST seeks as high a level of current income as is consistent with
preserving capital and providing liquidity.
TAX EXEMPT MONEY MARKET FUND seeks as high a level of current income exempt from
Federal income taxes as is consistent with preserving capital and providing
liquidity.
THE PROSPECTUS(ES) CONTAIN MORE COMPLETE INFORMATION AND SHOULD BE READ
CAREFULLY PRIOR TO INVESTING.
<PAGE>
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<PAGE>
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<PAGE>
TRUSTEES
Laurence B. Ashkin
Foster Bam
James S. Howell
Robert J. Jeffries
Gerald M. McDonnell
Thomas L. McVerry
William Walt Pettit
Russell A. Salton, III, M.D.
Michael S. Scofield
INVESTMENT ADVISER
Evergreen Asset Management Corp.
2500 Westchester Avenue
Purchase, New York 10577
CUSTODIAN & TRANSFER AGENT
State Street Bank and Trust Company
LEGAL COUNSEL
Shereff, Friedman, Hoffman & Goodman
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
DISTRIBUTOR
Evergreen Funds Distributor, Inc.
The investment adviser to the Evergreen Funds is Evergreen Asset Management
Corp., which is wholly- owned by First Union National Bank of North
Carolina. Investments in the Evergreen Funds are not endorsed or guaranteed
by First Union, are not deposits or other obligations of First Union, are
not insured or otherwise protected by the U.S. Government, the FDIC or any
other government agency, and involve investment risks, including possible
loss of principal.
The Evergreen Funds are sponsored and distributed by Evergreen Funds
Distributor, Inc., which is independent of Evergreen and First Union.
Evergreen National Tax-Free Fund
2500 Westchester Avenue
Purchase, New York 10577
<PAGE>
